If recent history is any guide, the days of US dollar strength are numbered

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  • Being long the US dollar is now deemed to be the most crowded trade, according to BAML’s latest Global Fund Managers Survey.
  • In the past two years, they’ve deemed being long tech heavyweights in the US and China, short financial market volatility, long bitcoin and long the US dollar as being the most crowded trades.
  • Many of those trades, particularly being short vol and long bitcoin, have not worked out for investors.

If recent history is any guide, the days of US dollar strength are numbered.

According to the latest Global Fund Managers Survey from Bank of America Merrill Lynch (BAML), capturing the opinions of 190 money mangers with a combined $US575 billion in funds under management, the most crowded trade in the world right now is being long the US dollar.

By crowded, it refers to a large proportion of market participants all being positioned for the same outcome to occur. In this instance, fund managers believe that many in markets are looking for the US dollar to strengthen further.

As seen in the chart below from BAML, this survey has somewhat of a lead indicator on assets that are about to top or bottom, especially recently.


Up until November, being long tech heavyweights such as the FAANG’s and BAT’s was deemed to be the most crowded trade since February this year.

While it took a while to play out initially, beyond a short and abrupt selloff in February, these stocks have been subsequently crushed in recent months.

Before that it was deemed to be the most crowded trade, being short financial market volatility claimed the title in January this year, shortly before one of the most violent selloffs in stocks on record, including the infamous blowup of the XIV in which investors could bet on a continued period of low financial market volatility.

Prior to betting on low volatility, Bitcoin was previously seen as being a crowded trade back in December 2017. Yep, enough said. The fundies nailed that call too.

While they were wrong about the Nasdaq before that, they were right about long the US dollar back in early 2017 given the greenback’s slide in 2017.

Now being long dollar is back to being the most crowded trade. The recent track record suggests it’s not a question of when the greenback rally will end, but when?

If the fund managers are right again on this one, one suspects the next crowded trade could well be a short one in an asset class that has been pummeled due in part to US dollar strength.

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